SL introduces key VAT changes

• All VAT returns must be filed electronically starting July 1, 2025

The Inland Revenue Department has announced several important changes to Sri Lanka’s Value Added Tax (VAT) system under the Value Added Tax (Amendment) Act No. 04 of 2025, which came into effect on April 11, 2025. 

 Among the key amendments, exemptions have been granted for the supply or import of naphtha by the Ceylon Petroleum Corporation (CPC) to the Ceylon Electricity Board (CEB), as well as for the supply of liquid milk and yoghurt made with at least 50% locally produced fresh milk. These changes are aimed at supporting domestic agriculture and energy sectors.  
Starting October 1, 2025, VAT will also be imposed on digital services provided by non-resident entities through electronic platforms to individuals in Sri Lanka. This move brings Sri Lanka in line with global tax trends concerning the digital economy.  
Additionally, all importers and exporters of commercial goods will now be required to register under the VAT Act, regardless of turnover or previous exemptions, in a bid to broaden the tax base and enhance compliance.  
The Department also announced that, effective July 1, 2025, all VAT returns must be submitted electronically. Manual filing will only be permitted under exceptional circumstances with prior approval from the Commissioner-General.  
However, the importation of aircraft engines and spare parts, previously exempt under specified Harmonized Commodity Description and Coding System (HS Code) numbers, will no longer enjoy VAT exemption.